Another Wall Street strategy team is out with an optimistic forecast about how far stocks will go this year.
In a note to clients on Sunday, Bank of America's U.S. equity and quantitative strategy team, led by Savita Subramanian, raised its year-end target for the S&P 500 (^GSPC) to 5,400 from 5,000. That forecast and a recent note from UBS are the most optimistic forecasts for the benchmark average this year among strategists tracked by Yahoo Finance.
“Bulls markets end in euphoria – we are not there yet,” Subramanian wrote. “Mood has improved, but areas of euphoria are limited (AI, GLP-1).”
BofA's move marks the fifth increased price target from strategists tracking Yahoo Finance in the last month. The more optimistic outlook comes as stocks rose earlier in the year. The S&P 500 and Nasdaq Composite (^IXIC) just completed their best February performance since 2015, helped by a second straight quarter of earnings growth and increased confidence in the direction of the US economy.
Subramanian noted that fourth-quarter earnings rose 4% year over year and that analysts are not lowering their forecasts for the current quarter by the usual amount. This comes as Bank of America's economic research team just upgraded its growth outlook for this year as well. This combination of an elevated earnings outlook and a more optimistic outlook for the U.S. economy was a common thread cited in Wall Street's recent year-end target hikes for the S&P 500.
However, Bank of America strategists don't expect the stock's upward trend to be linear. Subramanian's team noticed a sort of retreat from the current state Levels could be on the horizon. Since 1929, the S&P 500 has experienced 5% pullbacks on average three times a year, and typically one of those pullbacks results in a 10% correction, according to a Bank of America study.
“We are due after four months with no significant decline,” Subramanian wrote.
The story goes on
The team also emphasized that history shows that volatility in stocks will increase as the 2024 presidential election approaches, but that “a rally typically follows” once uncertainty subsides.
And when that year-end rally comes, Bank of America expects it to be driven by a broader group of stocks than the technology stocks that are currently driving the S&P 500 higher.
“We expect the lead to widen as the gap between the Magnificent 7's earnings growth and the rest of the S&P 500 narrows,” Subramanian wrote.
A chart from Bank of America shows that earnings for the 493 S&P 500 stocks not included in the Magnificent Seven are expected to rebound in the second half of 2024.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
Click here for the latest stock market news and in-depth analysis, including stock-moving events
Read the latest financial and business news from Yahoo Finance